Question

Search the Internet for vendors who sell this book or inquire about it with a local library.

Select one financial institution from the following list:

• European Investment Bank
• Asian Development Bank
• World Bank
• Development Bank of Latin America
• International Monetary Fund

Develop the following in a minimum 700-word essay:

• Describe its origin, organization, purpose, and tax benefits for new business.   
• Analyze the interaction between the selected global financial institution and the exchange rate mechanism of the foreign exchange market.

Answer 1

The IMF's origins go back to the days of the 1930s ' global chaos. Plans for building an international institution for the establishment of monetary order were drawn up during the Second World War.

Delegates from 44 non-communist nations negotiated an agreement on the structure and functioning of the international monetary system at the Bretton Woods Conference held in July 1944.

The IMF aims to:

Promoting global monetary cooperation through a continuous organization that offers the mechanism for consoling and working together on global monetary issues. To promote the expansion and balanced growth of international trade, thereby contributing to the promotion and maintenance of high jobs and real income levels and the development of all members ' productive assets as the primary objective of economic policy. Promoting stability of exchange, maintaining orderly exchange agreements between employees, and avoiding depreciation of competitive exchange.

The IMF's main role is to oversee the international monetary system. This gives rise to several features. These are: granting credit to member nations in the midst of temporary equilibrium of payment deficits, monitoring of member countries ' currency and exchange rate policies, issuing policy recommen-dations.

It acts as a center for global collaboration with its members as well as a source of advice and technical aid.

The IMF's primary role is to provide its members with temporary economic assistance so that they can correct the' basic' BOP disequilibrium. Such loan awards, however, are subject to rigorous conditionality. Conditionality is a direct result of the monitoring function of the IMF over the members ' exchange rate policies or adjustment process.

Stand-by agreements generally operate for a period of 12-18 months to stabilize the BOP of a member. Developing countries are suffering from chronic BOP issues that can not be addressed in the brief term. Such prolonged LDC BOP problems were the consequence of structural manufacturing and trade imbalances. It then required a longer-term program of adjustment and redemption scheme.

For the advantage of its members, the IMF can be seen as both a funding organization and an global adjustment-oriented organization. The Fund loans ' distinctive characteristics are their price and certain circumstances of macroeconomic policy. These demands for conditionality vary from rather general obligations to cooperate with the IMF in establishing policies to formulate a particular, quantified monetary, commercial and fiscal policy plan.

Structural adjustment programs (which include not only stabilization programs linked to monetary and fiscal policy measures, but also trade liberalization, privatization, globalization, market freeing to determine prices, reforming institutions, taking on the new role of government, etc.) are said to be preconditions for securing Bank-Fund loans. There are many and diverse adverse effects on the LDCs.

The IMF lends cash to nurture the economies of those nations in order to provide economic help to member countries with balance of payments issues. This aid can replenish international reserves, stabilize currencies, and reinforce economic growth conditions. The IMF expects the countries to pay back the loans, and the countries must embark on structural adjustment policies monitored by the IMF.

The IMF helps its member nations design economic policies that handle their financial circumstances more effectively by using capacity management. It seeks at strengthening human and institutional ability through technical help and training. For nations with prior policy failures, weak institutions or scarce resources, this is very crucial.

While the IMF does a excellent job of ensuring global stability, it has its critics. Some claim that the IMF only deepens the divide between rich and poor nations. Critics claim that economic issues are placed ahead of social issues by having nations pay back debts.

The IMF used to classify exchange rate regimes according to formal statements of government (de jure classification) Many allegedly set rates often adapted some strongly managed allegedly flexible rates. Not always has the managed floating exchange rate been used. Until the 1910s, the gold standard checked global exchange rates. Another very comparable scheme in the 1930s was called the gold-exchange standard. This scheme enabled nations to back up their currencies not in gold but on the gold standard with other currencies such as U.S. dollars and British pounds. It was up to the International Monetary Fund (IMF) to stabilize currency exchange prices until the 1970s

The dwindling quantity of gold assets compelled the U.S. to give up any gold-controlled standard, and the dollar and other paper currencies started to base the international monetary system. By importing a lower quantity of products and exporting a bigger quantity, governments can stabilize their exchange rates. Similarly, by selling them to other nations, they can devalue other currencies to increase their own status. The exchange of the gold standard and the IMF added stability to the world economy, but without its own issues it did not come. Linking a currency to a finite material would make the markets inflexible and could potentially lead to one country’s being able to economically isolate itself from trade. With a managed floating exchange rate, countries are encouraged to trade.